“As the new procedures under the Trademark Modernization Act are implemented, it will be important for brand owners to ensure that the goods and services identified in their applications and subsisting registrations accurately reflect how the marks are being used, lest their registrations be expunged or limited in scope.”
The past year has seen the implementation of brand-new trademark legislation, significant analysis of trademark liability for new technologies, renewed focus on the doctrine of initial interest confusion, the transformation of Nikes into “Satan Shoes,” the functionality of chocolate dipped cookies, and the end to a long-running case involving two multi-million dollar jury awards for willful infringement.
As 2021 comes to an end, we look forward to what 2022 has in store.
Rolling Out the Trademark Modernization Act
One of the most significant developments in trademark law over the last year was the implementation of the Trademark Modernization Act (TMA).
Of particular note, the TMA restored the rebuttable presumption of irreparable harm when a Lanham Act violation has been proven, allowing brand owners to more easily obtain injunctions. The importance cannot be overstated: the goodwill a brand enjoys can be undermined by confusing infringements, disparaging dilutions, and false advertisements. When faced with such attacks, a brand’s most important tool is the ability to obtain a quick preliminary injunction to stop the misconduct and preserve the status quo.
With the enactment of the TMA, the courts have been once again applying the presumption over the last year. For example, in ReBath LLC v. Foothills Serv. Sols. Co., 2021 WL 2352426 (D. Ariz. June 9, 2021), the court applied the presumption on a motion for a temporary restraining order in a case involving a franchisee that continued operating under the franchisor’s trademark after the franchise agreement was terminated. Similarly, in Theorem, Inc. v. Citrusbyte, LLC, 2021 WL 5750238 (C.D. Cal. Nov. 16, 2021), the court applied the presumption on a motion for a preliminary injunction after finding that the plaintiff was likely to succeed on the merits. The court expressly rejected the defendant’s argument that the plaintiff had failed to demonstrate irreparable harm, noting that the rebuttable presumption was effective upon the TMA’s enactment on December 27, 2020. Other courts have followed suit. See, e.g., RiseandShine Corp. v. PepsiCo, Inc., 2021 WL 5173862 (S.D.N.Y. Nov. 4, 2021); Suzie’s Brewery Co. v. Anheuser-Busch Cos., LLC, 519 F. Supp. 3d 839 (D. Or. 2021).
In addition to restoring the presumption, the TMA includes other important procedures aimed at fighting fraud in the trademark office. Notably, the new ex parte expungement and re-examination procedures under the TMA will go into effect on December 18, 2021. These procedures are intended to help ensure the accuracy of the trademark register by providing new mechanisms for removing a registered mark from the trademark register (or cancelling the registration as to certain goods and/or services) when the registrant has not used the mark in commerce ever (in the case of expungement) or as of the application filing date (in the case of re-examination). These procedures are intended to provide a faster, more efficient, and less expensive alternative to a contested inter partes cancellation proceeding at the Trademark Trial and Appeal Board. As these new procedures are implemented, it will be important for brand owners to ensure that the goods and services identified in their applications and subsisting registrations accurately reflect how the marks are being used, lest their registrations be expunged or limited in scope.
Infringement Risks for E-Commerce Platforms
As the COVID-19 pandemic continues, consumers increasingly are shopping through e-commerce platforms. These platforms—which provide third party sellers a marketplace to sell their goods—provide convenience and innovation, but they also come with some trademark risk. It is still an open question whether and when these e-commerce platforms will be held liable for trademark infringement. Traditionally, following the Tiffany v. eBay case from 2010, such businesses were liable for contributory infringement only if they had specific knowledge of infringing goods being sold on the platform. Recent cases have shown, however, that platforms may be directly liable for infringement if they take an active role in the sales.
For example, a number of cases over the last year have addressed the business model of Redbubble, a print-on-demand online marketplace through which independent artists can upload their artwork to Redbubble’s website and consumers can purchase products, such as t-shirts, mugs, phone cases, stickers, and bags, bearing the designs. The cases have addressed important questions about whether Redubble’s approach to online sales gives rise to liability for trademark infringement, trademark counterfeiting, and even right of publicity violations.
The question of whether Redbubble may be held directly liable for trademark infringement stemming from the products sold on its site was addressed by the Sixth Circuit in Ohio State University v. Redbubble, 989 F.3d 435 (6th Cir. 2021). There, Ohio State University (“OSU”) sued Redbubble alleging direct trademark infringement by Redbubble for the sale of apparel, stickers, phone cases and other products on the marketplace that allegedly infringed several of OSU’s trademarks, such as its “OSU” and “O” insignias and Brutus Buckeye mascot. OSU, as assignee of Urban Meyer’s right of publicity, also sued for violations of the Ohio right of publicity statute based on sale of products bearing Coach Meyer’s image.
The district court entered summary judgment in Redbubble’s favor. It held that Redbubble did not “use” any trademarked images in operating its business because it merely acted as a “transactional intermediary” between buyers, sellers, manufacturers, and shippers. The Sixth Circuit reversed, holding that the district court’s interpretation of the Lanham Act test for direct infringement was too narrow. Rather, the Court of Appeals held, use in commerce may be found not only through “sales” of products to which the seller has title, but also through other activity, such as offering a product for sale or distributing or advertising it. The Court remanded the case for reconsideration in light of this more liberal standard.
District courts in California that have considered the same question have been split. In January 2021, a Northern District of California ruling denied Redbubble’s request for summary judgment on the same grounds, holding that there were questions of fact as to whether Redbubble used Atari’s trademarks from signature games like Pong and Asteroids in manner that would establish direct trademark liability. Atari Interactive, Inc. v. Redbubble, Inc., 515 F.Supp.3d 1089 (N.D. Cal. 2021). On November 4, 2021, a jury found that Redbubble did not infringe any of Atari’s intellectual property.
In an earlier case, however, the Central District of California agreed with Redbubble and rejected claims of direct infringement, relying in part on the OSU district court decision. In that case, Brandy Melville, a teen-favorite women’s fashion brand, sued Redbubble for direct, vicarious and contributory trademark infringement, counterfeiting, false designation of origin, and unfair competition, alleging Redbubble created, manufactured and distributed large quantities of counterfeit Brandy Melville apparel and products. Y.Y.G.M. SA d.b.a. Brandy Melville v. Redbubble, Inc., 2020 WL 3984528 (C.D. Cal. Jul. 10, 2020). The court granted the motion with respect to direct infringement, citing the OSU decision, and with respect to vicarious liability (because Brandy Melville failed to provide sufficient evidence of the requisite partnership, agency, or substantial control to sustain such a claim). The court rejected Redbubble’s efforts to evade all liability, though. The court held that there was enough evidence to create a material dispute of fact about Redbubble’s knowledge of infringing activity on its platform, which could give rise to contributory liability, and in June 2021, a jury found Redbubble liable for contributory infringement.
These cases should provide some guidance to others that are considering how to structure and operate their online marketplaces.
Initial Interest Confusion Lives On
In Select Comfort Corp. v. Baxter, 996 F.3d 925 (8th Cir. 2021), the Eighth Circuit, for the first time, held that trademark infringement based on a theory of initial interest confusion was actionable. The plaintiff, Sleep Number, alleged that the defendant infringed its trademarks by using similar names in its online business, in order to sell cheaper mattresses, through various online advertising formats including website urls; search inquiry paid terms; embedded links in third-party sites; and general use of identical or similar phrases in text advertisements or combined graphic-and-text advertisements that could be viewed by users or detected organically by search engines.
On a petition for certiorari to the Supreme Court, the petitioner argued that the Court should take the case because the Eighth Circuit’s decision “reviv[ed] a split between the Circuits” concerning a “dying doctrine.” The petition noted that three Circuits (the First, Fourth, and Eleventh) have entirely declined to adopt initial interest confusion. And among the Circuits that have adopted it, the petition argued that “all now recognize a narrower version of initial interest confusion than the broad formulation adopted by the Eighth Circuit [as applied to Internet searches], which may make mere attraction of consumers’ attention, even in the absence of any purchase or other concrete harm, actionable.” For example, the Second Circuit has held that, “[b]ecause consumers diverted on the Internet can more readily get back on track than those in actual space, thus minimizing the harm to the owner of the searched-for site from consumers becoming trapped in a competing site, Internet initial interest confusion requires a showing of intentional deception.” Savin Corp. v. Savin Grp., 391 F.3d 439, 462 (2d Cir. 2004).
The respondent argued that the petitioner mischaracterized the Circuit split. In particular, according to the respondent, the First, Fourth, and Eleventh Circuits have not actually declined to adopt initial interest confusion, and other circuits have adopted initial interest confusion without qualification. According to the respondent, courts “uniformly recognize[ ] that there can be liability for trademark infringement when there is a likelihood of pre-sale confusion, particularly when an advertiser employs ‘bait and switch’ advertising like the Petitioners do here.”
On November 22, 2021, the Supreme Court denied the petition for cert.
The Fate of the Rogers Test for Expressive Works Remains Unsettled
In January 2021, the Supreme Court denied certiorari to review the Ninth Circuit’s decision in VIP Prods. LLC v. Jack Daniel’s Props. Inc., 953 F.3d 1170 (9th Cir. 2020), which held that Jack Daniel’s claims for trade dress infringement and dilution against VIP Products for its Bad Spaniels Silly Squeaker dog chew toy were barred by the First Amendment under the Second Circuit’s Rogers v. Grimaldi test. VIP Products was the latest in a long line of cases attempting to balance First Amendment interests with the rights of trademark owners, and the Supreme Court’s denial left much uncertainty and inconsistency about the scope of First Amendment protections for artistic parodies that incorporate a brand’s trademark.
On March 29, 2021, just a few months after the Supreme Court denied cert in VIP Products, MSCHF Product Studio, a provocative Brooklyn-based art collective formed in 2016, released its infamous “Satan Shoes”—666 individually-numbered, modified black Nike Air Max 97s featuring a bronze pentagram pendant attached to the laces, an inverted cross on the tongue, and a drop of actual human blood (mixed with a red dye solution) injected into the sole. The Satan Shoes also prominently featured Nike’s famous Swoosh mark. The shoes were designed in collaboration with rapper Lil Nas X and were listed at a price of $1,018 per pair, in reference to the Bible verse Luke 10:18. The Satan Shoes were a companion project to MSCHF’s popular Jesus Shoes, which were released in 2019, sold for $1,425 (in reference Matthew 14:25), and featured “holy water” injected into the sole, Vatican-red insoles scented with frankincense, and a steel crucifix. The Satan Shoes sold out in less than one minute.
The day MSCHF released the shoes, Nike sued MSCHF in the Eastern District of New York for trademark infringement and dilution, alleging that the Satan Shoes were causing consumer confusion and that the shoes were tarnishing Nike’s brand. The next day, Nike moved for a temporary restraining order and a preliminary injunction, seeking to halt the shipment of the already-sold-out shoes and to recall any shoes that had already been shipped. MSCHF argued that the Satan Shoes were works of art protected by the First Amendment, citing Rogers and VIP Products and highlighting the shoes’ expressive purposes. First, the project was a critique of brand worship and “collaboration culture,” underscored by the absurd “collaborations” between Nike and Jesus on the one hand and Nike and Satan on the other. Second, the project was a critique of intolerance, highlighted by MSCHF’s collaborator Lil Nas X, a Black, gay man who dropped his music video for “Montero (Call Me By Your Name)” shortly before the shoes were released, and who has spoken at length about bigotry and the symbolism of the shoes and the video.
Both the shoes and the case received widespread attention among the public and the media, with articles in virtually every mainstream media outlet. The shoes were even spoofed in the cold open of the April 4, 2021, episode of Saturday Night Live. The case also received extensive commentary in the legal community. In April 2021, the district court granted Nike’s motion for a temporary restraining order to preserve the status quo until the preliminary injunction hearing, but it refused to order a recall of the 665 pairs of shoes that had already been shipped. The court recognized that “First Amendment rights of artistic expression are paramount” and that MSCHF would have a full opportunity to present its First Amendment defense at the preliminary injunction hearing. MSCHF and Nike settled soon thereafter, with MSCHF already having achieved its artistic purpose with the Satan Shoes and received massive publicity from the shoes and the lawsuit.*
Sugar Coated Trade Dress (Still) Cannot Be Protected
In a case that has significant implications for trade dress protection, the Third Circuit, on rehearing, doubled down on its holding that the Lanham Act does not protect product features that are “useful.” Ezaki Glico v. Lotte Int’l Am. Corp., 986 F.3d 250 (3d Cir. 2021).* The case involved Pocky snacks, which are long, thin biscuit stick that are partially covered in chocolate. In 1989, Ezaki Glico, a Japanese confectionery company, successfully registered the design of its chocolate covered biscuit sticks with the United States Patent and Trademark Office as a trademark. As a registered trade dress, the Pocky stick joined such other registered trademarks as the shape of Goldfish crackers, the shape of Hershey and Toblerone candy bars, the shape of Coca-Cola bottles, the dripping wax seal on bottles of Maker’s Mark bourbon, and the overall configuration of Ferrari and Volkswagen cars.
In 2020, the Third Circuit invalidated Ezaki Glico’s trademark registration because it found the design to be functional and therefore, unprotectible as a trademark. In considering whether the design of the Pocky stick was functional, the Third Circuit applied only the dictionary meaning of functional, and held that a design is functional, and hence not protectible as a trademark, if it is merely “useful” in some way. Because the partial chocolate covering on the Pocky stick made it useful to hold and eat the snack, the court found the design of Pocky sticks functional. 977 F.3d 261 (3d Cir. 2020). The Third Circuit’s decision on rehearing was nearly identical to the first, with some additional brief discussion on the meaning of whether a design is “useful.”
On November 1, 2021, the Supreme Court denied a petition for certiorari. The implications are significant because the Third Circuit’s decision is in apparent tension with Supreme Court precedent and nine other circuit courts, which have held that trade dress is “functional” if it is “essential to the use or purpose of the article” or “affects the cost or quality of the article.” With the denial of cert, the Third Circuit’s decision creates a forum for a more relaxed definition of a “useful” feature.
Willful Infringement Continues to be an Important Consideration in Disgorgement Cases
Following the Supreme Court’s 2020 unanimous decision in Romag Fasteners, Inc. v. Fossil Group, Inc., 140 S. Ct. 1492 (2020), which held that a showing of willful infringement is not required before a court may order a trademark infringer’s profits to be disgorged, the Fourth Circuit emphasized the importance of willfulness in considering the remedy of disgorgement in the long-running case of Variety Stores, Inc. v. Walmart Inc., 852 Fed. Appx. 711 (4th Cir. 2021).
The issue in the case was whether Walmart’s use of the mark “Backyard Grills” on its grills and grilling supplies infringed Variety Stores’ trademark for “Backyard.” Following a trial in which a jury found Walmart liable for willful trademark infringement, the jury then awarded Variety Stores $95.5 million in reasonable royalties and disgorgement of profits.
On appeal, Walmart argued that the district court erred in failing to instruct the jury on the meaning of “willfulness.” The Fourth Circuit agreed and vacated the jury’s willfulness finding, explaining that the word “willful” has many meanings, which often depend on the context in which it appears. “Indeed, it would be easy for a layperson to erroneously believe that willfulness merely requires that Walmart’s actions were volitional. . . . [and] [w]ithout a sufficient understanding of the legal definition of ‘willfulness’ in the trademark context,” the jury acted in ignorance of the controlling legal principles. Id. at 724.
Notably, this was the second time that the Fourth Circuit vacated a jury award in the case. In 2018, the Fourth Circuit vacated a $32.5 million award against Walmart, holding that the district court erroneously granted summary judgment to Variety Stores on the issue of infringement, when the issue should have been submitted to a jury. In June 2021, the parties advised the court that they had settled the case.
* Debevoise & Plimpton defended MSCHF in the district court, and represented the International Trademark Association in its amicus brief filed in The Third Circuit in the Ezaki Glico case.
Image Source: Deposit Photos
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